Insurance Policyholder Taxation Manual

Sickness disability and unemployment insurance: action if tax deducted at source by insurer

Payments falling wholly within the scope of the exemption

Where payments from policies fall wholly within the scope of the exemption set out in IPTM6100 to IPTM6115, those payments should be received without tax being deducted by the insurer. This should happen automatically.

However, if for example an insurer was not made aware that an employee had contributed towards premiums paid by their employer, and was therefore unaware that the payments should be wholly or partially exempt, it would deduct tax from the payments.

In this case the policyholder should ask the insurer for form R91 ‘Application for payment of benefits without deduction of tax’. The completed form should be returned to the insurer who will arrange to make future payments without deducting tax and repay any tax that had been unnecessarily deducted.

Alternatively the insurer might correctly deduct tax from the payments but, even taking those payments into account, the policyholder’s income might be below taxable income limits.

In this case, on receipt of a completed form R91, the insurer will arrange to make future payments without deducting tax, but the person will need to contact their HMRC office to arrange repayments of tax already deducted.

How the insurer recovers amounts of tax which it has repaid

ICTA88/SCH16/PARA7A and CTM35130 contain details of what the insurer should do where it becomes aware that anything which ought not to have been included in a return under that schedule has been so included.

Payments not falling wholly within the scope of the exemption

Any payments that are not within the exemption are taxable as income and the insurer would normally be deducting tax from them.

These payments, when added to the chargeable person’s income, may attract tax at higher/additional rates and should therefore be included in their self assessment tax return.